Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), testifies before the Senate Banking, Housing and Urban Affairs Committee during an oversight hearing on Capitol Hill in Washington, Sept. 15, 2022.
Evelyn Hochstein | reuters
WASHINGTON – As investors focused on earnings and regional banks this week, the Securities and Exchange Commission quietly adopted new rules that will require public companies to disclose more information than ever before about stock buybacks.
The new rules will “enhance the transparency and integrity” of corporate stock repurchases, and allow investors to “better assess issuer buyback programs,” SEC Chairman Gary Gensler said in a statement about the updated disclosures.
Gensler also noted the increasing rate at which US corporate buybacks have grown in recent years, rising from a total of $950 billion in value in 2021 to more than $1.25 trillion last year.
This year could be just as big. Google Guardian Alphabet announced Last month that its board approved $70 billion in stock buybacks this year, equal to the amount the company will spend repurchasing its own shares in 2022. This week, Apple announced plans Google to buy back even more stock: worth $90 billion this year, on the heels of a previous $90 billion in 2022.
new disclosure rules Implementation will begin when US corporations report earnings for the fourth quarter of 2023, and foreign issuers over a slightly longer time period.
What public companies will be required to disclose
- A daily log of share repurchase activity, disclosed as an exhibit in the 10-Q report at the end of each quarter and in the annual 10-K report.
- Description of the rationale behind each buyback and the goals of that buyback. The issuer will also need to explain the criteria used to determine how many shares to repurchase.
- Whether certain directors or officers of the company bought or sold any shares within a period of four days before or after the buyback.
- More details about company stock trading agreements with their directors and officers, known as 10b5-1 plans. This includes the start and end dates, the total number of shares and the physical terms of these plans.
Approved by a commission vote of 3-2 on Wednesday, new rules Mark the end of a years-long battle over how much the public and shareholders have a right to know about the increasingly common practice of companies repurchasing their own shares.
They also reflect a larger debate around the country about share buybacks, which typically increase the value of a company’s shares by reducing the total number of shares in the market.
With compensation for top executives often linked to share price performance metrics, buybacks have emerged over the past decade as a relatively simple, quick means by which to boost a company’s share price, in many cases by increasing sales. , Much simpler than expanding operations. , or increase profits.
There has also been a boom in the markets Practice of public companies issuing debt to buy back its own shares, a practice that some economists Confidence poses a threat to the long-term health of the US economy.
The changes approved Wednesday represent a softening of the SEC’s initially proposed disclosure rules that would have required public companies to report trades by corporate insiders on a daily basis. The commission said its final decision was influenced by concerns raised in public comments, that daily reporting would be too costly and time-consuming.
Public interest groups, many of whom have become critical of large-scale corporate buybacks, applauded the new rules.
“Stock buybacks have grown substantially in recent years and are increasingly being used as a way to reinvest capital to advance a company’s long-term productivity, profitability and employee welfare,” said Stephen Hall, legal director at the nonprofit Better Markets. rather than to enrich the officers.” , “This final rule will certainly increase the quantity, quality and timeliness of reporting on these controversial transactions.”
But industry advocates criticized the new rules as onerous and unfair, and accused the SEC of trying to prevent companies from repurchasing their own shares.
Chris Netram, managing vice president of the national association, said, “The commission’s attempt to discourage these simple, common-sense transactions through an overly complex, costly and unenforceable disclosure mandate … is intended to enhance capital formation and protect investors.” departure from his mission to do.” of manufacturers.
On Capitol Hill, bipartisan support for stricter buyback disclosure rules has been evident since the start of the SEC’s rulemaking process more than a year ago.
“Capital markets provide the means by which companies raise capital and invest it productively for the good of their investors, workers, communities, and ultimately our country,” wrote Sens. Tammy Baldwin, D-Wis., and Marco. . Rubio, R-Fla., in A letter to gensler In 2022.
The explosion of corporate buybacks, he wrote, represented a shift “towards transactions in securities for the purposes of financial engineering to raise capital to invest productively in business and industry”.
The SEC has repeatedly stated that it has no position on whether corporate share buybacks are good or bad, and that the new disclosure rules reflect the growing importance of buybacks as a key element of corporate strategy.